As volatility in global financial markets grows amid war between the United States and Israel and Iran, even major hedge funds on Wall Street were swept up in the swings and incurred losses.
On the 10th (local time), the Financial Times (FT) in the United Kingdom reported that the Wellington fund, the flagship fund of Citadel, one of Wall Street's largest hedge funds, posted a 2% loss last week. The Wellington fund is still maintaining revenue so far this year, but if the war drags on, it could turn to a loss.
ExodusPoint, run by Wall Street heavyweight investor Michael Gelband, also recorded a 2% loss last week as its heavy allocation to bonds backfired. As market volatility increased due to the war, ExodusPoint gave back all the revenue it had posted this year. U.S. hedge fund Millennium Management also reportedly lost 1.2% last week.
The Wall Street Journal (WSJ) also reported the same day that large hedge funds such as Citadel, Millennium, ExodusPoint, and Point72 suffered losses from the fallout of the Iran war. Point72 reportedly recorded a loss of about $1.5 billion (about 2 trillion won) last week. Rather than losses stemming from a single transaction, these hedge funds were hit as their bond-market bets based on macroeconomic outlooks went awry, according to analyses.
WSJ said, "Given that they manage assets worth billions of dollars, the latest losses are relatively small in percentage terms," while adding, "The losses show how much the conflict over Iran has shaken conventional wisdom in the bond market."
Financial markets have seen extreme volatility since the United States and Israel attacked Iran on the 28th of last month. As oil prices surged amid the war's fallout, selling was triggered in the bond market last week, and investors in short-term Government Bonds also took a heavy hit. The case of Brent, the international oil benchmark, plunging from $119 to $84 per Barrel in just 24 hours shows how severe the market volatility is.
In particular, in the bond market, investors who had bet that the Federal Reserve (Fed) would continue its rate-cutting stance were hit by the Iran war. A macro trader noted, "Because volatility had been abnormally low right up until the crisis, hedge funds took excessive risk on rate cuts, which came back to bite them."
Citadel and Millennium Management are cited as representative "multi-manager" hedge funds. Their funds have dozens to hundreds of trading teams (pods) that each independently manage capital and transact in a variety of assets, including stocks, bonds, foreign exchange, and commodities. Rather than making large investments in a few risky bets, their core strategy is to run multiple strategies simultaneously to reduce exposure to a particular market direction and seek stable revenue.
In recent years, such strategies have generated high revenue in the hedge fund industry. However, as their assets under management (AUM) amount to tens of billions of dollars, there are concerns that when market volatility increases as it has recently, large losses can occur and the fallout could spread across the broader market.
There is also an outlook that the volatility from the Iran war could instead become an investment opportunity. Last year, some hedge funds took unexpected hits from the Donald Trump administration's large-scale tariff hikes, but on an annual basis they still managed to post revenue. WSJ explained, "These funds run so-called market-neutral strategies that seek revenue in both rising and falling markets," adding, "Even if losses occur in some transactions, revenue from other transactions offsets them."